Premium Bonds give ERNIE a makeover

Nigel Woollsey

Long before the National Lottery had us all rushing to the newsagents to buy a ticket, Premium Bonds were making people happy with the chance to win big cash prizes. Since their introduction in 1956 by then Chancellor and later Prime Minster, Harold Macmillan, Premium Bonds have paid out prizes totalling in excess of £19.2 billion.

Originally conceived to encourage people to save more, these bonds have continued to be an attractive, low-risk investment opportunity – backed by the Government's guarantee to buy them back for their original price on request.

At the heart of this prize lottery sits ERNIE, the computer responsible for picking the winning Premium Bond numbers for over 60 years. Short for Electronic Random Number Indicator Equipment, ERNIE has been through several incarnations with the latest, ERNIE 5, recently being unveiled by NS&I.

While the original ERNIE was a hulking behemoth taking up most of a room, subsequent advances in technology have seen valves and vacuum tubes replaced by microchips – with the newest, pea-sized ERNIE 5 utilising state-of-the-art quantum computing in order to generate the 3 million completely random winners in just 12 minutes, a far cry from the three days originally required by ERNIE 1.

At the heart of the nation's favourite number generating robot lies a technology that uses light to generate the completely random winning Premium Bonds. Simply put, photons are fired from an LED at a semi-transparent mirror. Winners are then determined by the pattern of photons that are either reflected by the mirror and those which manage to pass through it.

That the numbers produced are completely and utterly random is central to the fact that all National Savings & Investment Premium Bonds have the same chance of bagging a prize. Indeed, every month ERNIE must be officially and independently checked by the Government Actuary's Department (GAD) to ensure that ERNIE's output is comprehensively random. If their tests are met then the GAD issue ERNIE with a certificate which is valid for that month only.

So, with today's competitors including Camelot's National Lottery, as well as any number of internet casinos and online bookies, what is the reason for the continued success of the Premium Bonds monthly prize draws? Well, firstly, Premium Bonds can be seen as a genuine investment – Despite Harold Wilson's and the church's belief back in 1956 that they would lead to ordinary people being lost in the throes of gambling addiction, Premium Bonds have become a low-risk investment opportunity for everyone, at present requiring just £25 as the minimum sum to be deposited. With a current average interest rate equivalent to 1.40%, Premium Bonds potentially offer a much higher return than the ordinary savings accounts of nearly all the major banks and building societies (though you can find higher rates if you consider challenger banks – see our Best Buys for more).

Of course, the chances of bagging an unexpected windfall as a result of the monthly prize draws might also have something to do with the fact that a staggering one in three Britons have invested in Premium Bonds – making them one of the most successful financial products in their class.

But what are the actual chances of landing one of those two life-changing monthly £1 million prizes? Well, with an estimated £79 billion worth of Premium Bonds in circulation, the answer is not great – but take heart that the overall chances of winning anything, from the minimum £25 to the million-pound top prizes, are just 24,500 to one. Of course, the beauty of Premium Bonds lies in the fact that the more you invest the more your chances of winning a prize increase, quite simply because you'll have more Bonds in each draw.

As of June 2018, with an investment of £100 the overall chance of winning something each year was 4.78%, while holding £10,000 worth of Premium Bonds would elevate your odds of bagging a prize in one year to a very attractive 99.3%. Not bad for a lottery where the Government guarantees to return your original investment – a promise that you aren't likely to see equalled by Camelot, your local bookmakers or any online casino.

For now, ERNIE 5 isn't likely to be made redundant any time soon, and the chances of us seeing ERNIE 6 in the years to come? We'd say that was a dead cert.